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Journal Of Actuarial Practice, Volume 3, No.1, 1995, Colin Ramsay , Editor Jan 1995

Journal Of Actuarial Practice, Volume 3, No.1, 1995, Colin Ramsay , Editor

Journal of Actuarial Practice 1993-2006

ARTICLES

Life Insurer Risk-Based Capital: An Option Pricing Approach Samuel H. Cox and Arthur M.s. Hogan

Surveillance of Life Insurer Solvency: A Comparison of Stock and The Multiple Scenario Cash Flow Financial Stress Tests Ronald W. Spahr and Paul L. Gronewolier

HIV, AIDS, Markov Processes, and Health and Disability Insurance Steven Haberman

Obtaining a Life Table for Spinal Cord Injury Patients Using Information Theory Patrick L. Brockett and Yun Song

Simulation of Investment Returns for a Money Purchase Fund M. Zaki Khorasanee

Decision Making Under Conflicting Criteria In Pension Valuations: An Expected Utility Model Lisa L. Posey and Arnold ...


Journal Of Actuarial Practice, Volume 3, No.2, 1995, Colin Ramsay , Editor Jan 1995

Journal Of Actuarial Practice, Volume 3, No.2, 1995, Colin Ramsay , Editor

Journal of Actuarial Practice 1993-2006

ARTICLES

Measuring and Managing Catastrophe Risk Ronald T. Kozlowski and Stuart B. Mathewson

Discussion Rade T. Musulin & Authors' Reply

Sensitivity Testing of Property/Casualty Cash Flows Ralph S. Blanchard, III and Eduardo P. Marchen

A Pension Plan Incorporating Both Defined Benefit and Defined Contribution Principles M. Zaki Khorasanee

Expected Loss Development in Workers' Compensation Pricing: A Shift in Credibility • Christopher J. Poteet

Editor - Colin Ramsay, University of Nebraska. Associate Editors: Robert Brown, University of Waterloo ○ Cecil Bykerk, Mutual of Omaha ○ Ruy Cardoso, Actuarial Frameworks ○ Samuel Cox, Georgia State University ○ David Cummins, University of Pennsylvania ○ Robert Finger, Retired ○ Charles Fuhrer, The ...


Discussion Of Leonard T. Guarini And Edward P. Lotkowski's "Model Year Rating For Automobile Liability And Injury Coverages", Mohammed Q. Ashab Jan 1995

Discussion Of Leonard T. Guarini And Edward P. Lotkowski's "Model Year Rating For Automobile Liability And Injury Coverages", Mohammed Q. Ashab

Journal of Actuarial Practice 1993-2006

No abstract provided.


Sensitivity Testing Of Prdperty/Casualty Cash Flows, Ralph S. Blanchard Iii, Eduardo P. Marchena Jan 1995

Sensitivity Testing Of Prdperty/Casualty Cash Flows, Ralph S. Blanchard Iii, Eduardo P. Marchena

Journal of Actuarial Practice 1993-2006

The paper outlines an approach that has evolved at Aetna through ten years of property/casualty insurance cash flow testing. Methodologies and approaches to setting parameters reflecting both default and call/prepayment risk are discussed for major invested asset categories. Modeling runoff cash flows for a base scenario (and, for some of these assets, shocked scenarios) also is examined for major non-invested asset categories. Loss reserve cash flow modeling is not addressed, except for a brief description of one approach to shocking projected flows. Finally, various alternatives are given for presenting cash flow testing results to management and non-actuarial audiences.


Discussion Of Leonard T. Guarini And Edward P. Lotkowski's "Model Year Rating For Automobile Liability And Injury Coverages", Cheng-Sheng Peter Wu Jan 1995

Discussion Of Leonard T. Guarini And Edward P. Lotkowski's "Model Year Rating For Automobile Liability And Injury Coverages", Cheng-Sheng Peter Wu

Journal of Actuarial Practice 1993-2006

No abstract provided.


Expected Loss Development In Workers' Compensation Pricing: A Shift In Credibility, Christopher J. Poteet Jan 1995

Expected Loss Development In Workers' Compensation Pricing: A Shift In Credibility, Christopher J. Poteet

Journal of Actuarial Practice 1993-2006

This paper shows that expected loss development is equivalent to adjusting the full credibility standard and applying credibility by policy period. Expected loss development should not be used in workers' compensation ratemaking. The credibility is correct before being adjusted.


Surveillance Of Life Insurer Solvency: A Comparison Of Stock And The Multiple Scenario Cash Flow Financial Stress Tests, Ronald W. Spahr, Paul L. Gronewoller Jan 1995

Surveillance Of Life Insurer Solvency: A Comparison Of Stock And The Multiple Scenario Cash Flow Financial Stress Tests, Ronald W. Spahr, Paul L. Gronewoller

Journal of Actuarial Practice 1993-2006

The solvency of life insurance companies may be threatened by interest rate risk when the maturities of assets and liabilities are mismatched. The National Association of Insurance Commissioners' (NAIC) multiple scenario cashflow test (MSCFT) and the Office of Thrift Supervision (OTS) net portfolio value model (stock) approaches to financial stress tests are illustrated and analyzed with respect to their capacity to estimate the impact of potential changes in interest rates on life insurance company capital and surplus. Each approach is illustrated with the assets and liabilities of three hypothetical life insurance company capital levels (high, average, and below average) and ...


Decision Making Under Conflicting Criteria In Pension Valuations: An Expected Utility Model, Lisa Lipowski Posey, Arnold F. Shapiro Jan 1995

Decision Making Under Conflicting Criteria In Pension Valuations: An Expected Utility Model, Lisa Lipowski Posey, Arnold F. Shapiro

Journal of Actuarial Practice 1993-2006

Many of the criteria used by actuaries when selecting assumptions for pension plan valuations often conflict. As a result, actuaries must weigh the various costs and benefits associated with a particular set of assumptions. We use expected utility theory to model the process of chOOSing actuarial assumptions when faced with potentially conflicting criteria. The three criteria considered are prudence, best estimate, and conservatism. The actual contribution chosen by the actuary is found to depend on the contribution level that triggers a red flag with respect to tax deductibility. If this level is relatively low, the actuary chooses a high contribution ...


Cross-Tested Defined Contribution Plans, Ho Kuen Ng Jan 1995

Cross-Tested Defined Contribution Plans, Ho Kuen Ng

Journal of Actuarial Practice 1993-2006

Cross-tested plans are defined contribution plans that test allocations for nondiscrimination. The test is based on a plan's actuarial equivalent annuity benefits. Cross-tested plans have become popular among small plan sponsors after the release of the nondiscrimination regulations. This paper investigates the pros and cons of cross-testing.


Discussion Of Ronald T. Kozlowski And Stuart B. Mathewson's "Measuring And Managing Catastrophe Risk", Rade T. Musulin Jan 1995

Discussion Of Ronald T. Kozlowski And Stuart B. Mathewson's "Measuring And Managing Catastrophe Risk", Rade T. Musulin

Journal of Actuarial Practice 1993-2006

Mr. Kozlowski and Mr. Mathewson's paper provides a good introduction to the development and use of models in the property insurance industry. It will be a valuable addition to the regrettably sparse actuarialliterature in this area. This discussion will offer several comments on the ideas raised in the paper, focusing on how models can be used to enhance an actuary's work. The use of models has sparked major controversies between regulators and insurers in several jurisdictions, notably Florida. Controversy is not limited to the regulatory arena, however. Because models are being used by reinsurers to rate contracts and ...


Measuring And Managing Catastrophe Risk, Ronald T. Kozlowski, Stuart B. Mathewson Jan 1995

Measuring And Managing Catastrophe Risk, Ronald T. Kozlowski, Stuart B. Mathewson

Journal of Actuarial Practice 1993-2006

We introduce some of the basic principles behind property catastrophe modeling via simulations. The output of such simulations can be explored via modernized pin maps and loss likelihood curves. We also briefly discuss some of the uses of catastrophe modeling in addition to traditional probable maximum loss estimation. Comments are made on the use of modeling by reinsurers. We hope that this article stimulates discussions on new approaches to catastrophe modeling.


A Pension Plan Incorporating Both Defined Benefit And Defined Contribution Principles, Zaki M. Khorasanee Jan 1995

A Pension Plan Incorporating Both Defined Benefit And Defined Contribution Principles, Zaki M. Khorasanee

Journal of Actuarial Practice 1993-2006

We propose a defined contribution pension plan with an explicitly defined benefit formula. Such a plan is expected to pay more stable and predictable benefits over time than one based on the money purchase principle. The properties of the plan are investigated through simulation. Methods for distributing surpluses and eliminating deficiencies that involve adjusting the rate of benefit accrual (rather than varying the rate of contribution) are discussed. The behavior of the plan under a scenario of persistently unfavorable investment experience is Simulated, and methods for satisfactorily dealing with such a scenario are considered. The plan actuary is expected to ...


Simulation Of Investment Returns For A Money Purchase Fund, Zaki M. Khorasanee Jan 1995

Simulation Of Investment Returns For A Money Purchase Fund, Zaki M. Khorasanee

Journal of Actuarial Practice 1993-2006

This paper examines the problem of investment risk in money purchase pension plans. The disadvantages of modeling equity returns as independent, identically distributed random variables are conSidered, and a modified stochastic model of equity returns is proposed. This modified stochastic model is used to estimate the variability in a plan member's retirement fund and to compare various alternatives to investing 100 percent of the assets in ordinary shares. Varying conclusions are drawn about the likely success of these alternative investment strategies in reducing investment risk.


Actuarial Conservatism: Not In Public Sector Defined Benefit Pension Plans, Brian A. Jones Jan 1995

Actuarial Conservatism: Not In Public Sector Defined Benefit Pension Plans, Brian A. Jones

Journal of Actuarial Practice 1993-2006

Most actuaries tend to be conservative, and most, including this writer, probably would be happy to be so categorized. But actuarial conservatism may not be the best rule in defined benefit public sector pension plans. This paper argues that it is not appropriate for actuaries to employ conservatism assumptions in such public sector plans.


Hiv, Aids, Markov Processes, And Health And Disability Insurance, Steven Haberman Jan 1995

Hiv, Aids, Markov Processes, And Health And Disability Insurance, Steven Haberman

Journal of Actuarial Practice 1993-2006

This paper presents a Markov model of the transmission and development of HIV and AIDS. The Markov model is used to derive functions needed in the calculation of disability insurance premiums, reserves, and cash flows. An application to health insurance and disability insurance is provided.


Model Year Rating For Automobile Liability And Injury Coverages, Leonard T. Guarini, Edward P. Lotkowski Jan 1995

Model Year Rating For Automobile Liability And Injury Coverages, Leonard T. Guarini, Edward P. Lotkowski

Journal of Actuarial Practice 1993-2006

This paper is intended to stimulate further research and discussion on the validity and utility of model year rating for personal automobile coverages other than physical damage. Using data from a single insurer and some elementary statistical techniques, we provide evidence supporting model year as a classification variable for automobile liability and injury coverages.


Discussion Of Brian Jones' "Actuarial Conservatism: Not In Public Sector Defined Benefit Pension Plans", Richard Daskais Jan 1995

Discussion Of Brian Jones' "Actuarial Conservatism: Not In Public Sector Defined Benefit Pension Plans", Richard Daskais

Journal of Actuarial Practice 1993-2006

No abstract provided.


Life Insurer Risk-Based Capital: An Option Pricing Approach, Samuel H. Cox, Arthur M.B. Hogan Jan 1995

Life Insurer Risk-Based Capital: An Option Pricing Approach, Samuel H. Cox, Arthur M.B. Hogan

Journal of Actuarial Practice 1993-2006

This paper uses an option pricing framework to estimate life insurer risk-based capital. Stock market data and statutory asset and liability data are used to calculate the implied level of statutory risk-based capital for each of 18 insurers. We calculate the level of risk-based capital required to avoid subsidy from the guaranty fund. Our results suggest that less capital is required than that required under the New York actuarial risk-based capital formula. Firm rankings, however, are similar under both methods, although the methods are not directly comparable. We also determine the level of capital required if the subsidy provided to ...


Discussion Of Robert L. Brown's "Recent Canadian Human Rights Decisions Having An Impact On Gender-Based Risk Classification Systems", Patrick Butler Jan 1995

Discussion Of Robert L. Brown's "Recent Canadian Human Rights Decisions Having An Impact On Gender-Based Risk Classification Systems", Patrick Butler

Journal of Actuarial Practice 1993-2006

This commentary examines the political and economic influence of demographic groups on rationales for granting exemption from laws prohibiting classification by age or sex, as evidenced in the cases discussed by Robert L. Brown. Age is less subject than sex to manipulation for group advantage. In Professor Brown's discussion of auto insurance cases, only the influence of group dominance can explain:

• Selective focus on young drivers;

• Indifference to ongoing overcharging of adult women signaled by undisputed 2:1 ratios of cost-related averages; and

• Avoidance of effective ways to evaluate miles of exposure to risk.

Contrary to Professor Brown's ...


Recent Canadian Human Rights Decisions Having An Impact On Gender-Based Risk Classification Systems, Robert L. Brown Jan 1995

Recent Canadian Human Rights Decisions Having An Impact On Gender-Based Risk Classification Systems, Robert L. Brown

Journal of Actuarial Practice 1993-2006

With the passage of the Canadian Charter of Rights and Freedoms on April 17, 1982, all previous court precedents using gender in risk classification systems became obsolete. Three cases involving issues of discrimination in the use of age and gender now clarify the position of the Canadian judiciary. Based on the decisions in these three cases, this paper presents arguments that can be used in any jurisdiction to defend successfully the use of gender in a property /casualty risk classification system.


Obtaining A Life Table For Spinal Cord Injury Patients Using Information Theory, Patrick L. Brockett, Yun Song Jan 1995

Obtaining A Life Table For Spinal Cord Injury Patients Using Information Theory, Patrick L. Brockett, Yun Song

Journal of Actuarial Practice 1993-2006

We present a mortality table adjustment method based on a constrained information theoretic methodology. The objective is to adjust a standard mortality table to reflect a particular known characteristic of the population while remaining as close as possible to a given standard table. To illustrate these techniques, the medical results concerning survival of spinal cord injury patients are incorporated into a standard table to obtain a mortality table pertinent for paraplegic and quadriplegic individuals. The desired adjusted mortality table can be used by actuaries for special purposes such as wrongful injury damage award compensation calculations and determining life insurance premium ...